Fewer property investors and buyers are using companies to purchase property, new research claims.
Property adviser London Central Portfolio (LCP) has analysed the Government’s latest Annual Tax for Enveloped Dwellings (ATED) figures and found a 53% increase in Stamp Duty takings in the 2015-16 tax year at £178m.
ATED is an annual tax payable by companies that own UK residential property valued at more than £500,000.
It was set up to stop buyers avoiding Stamp Duty by making a purchase through an offshore company.
From the next tax year, the annual charge increases in bands starting at £3,500 for those worth between £500,000 and £1m.
Those companies owning properties worth £1m to £2m must pay an annual charge of £7,050 and between £2m and £5m the annual tax is £23,550.
LCP’s analysis of the data suggests the ATED may be an effective deterrent.
During the 2015-16 tax year, the number of liable properties above £2m decreased 14% since the tax was introduced and 27% between £10m and £20m.
In all, just 5,720 properties worth more than £1m were reported liable to the charge, representing only 0.03% of all privately owned property in England and Wales.
Naomi Heaton, chief executive of LCP, said: “The Government has made considerable progress of achieving its objectives of de-enveloping, whilst benefiting from an unanticipated tax windfall along the way. As the revenue begins to fall, however, there may be another black hole appearing, although the increased scope of non-domiciled IHT introduced this year, is likely to more than compensate.”
The figures are also interesting given the impending buy-to-let mortgage tax changes and numerous surveys showing landlords are incorporating to preserve the perk.
Properties which are bought for “genuine business reasons”, such as a buy-to-let, are not liable for ATED. However, owners do have to fill out a declaration each year to qualify for the exemption.
These companies would have to pay the charge if the lettings activity ceased.
Separately, shadow housing minister John Healey has issued questions to Chancellor Philip Hammond relating to purchasing buy-to-let property through a company.
He has asked: “What assessment he has made of how many landlords will be (a) affected by, (b) exempted because they are a corporate landlord and (c) exempted because they fall into another exempted group from the restriction on the ability to deduct loan interest and other financial costs as an expense against income from residential property to the basic rate of income tax announced in Summer Budget 2015.”
Healey is still awaiting a response.